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Gift money to kids can backfire if you don't check the fine print first
I put $3,000 into my daughter's savings account last year thinking it was a simple gift. Then her college financial aid office told me that money counted as an asset on her FAFSA, and it dropped her aid by over $1,200. Nobody warned me that the rules treat custodial accounts differently than 529 plans. Has anyone else run into this surpise with their kid's college money?
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ruby5612mo ago
Did you set it up as a custodial account under UTMA/UGMA? That's exactly what tripped me up last year. I had to learn the hard way that those accounts count as the kid's asset at over 20% on the FAFSA, while a 529 in my name only counts at like 5% of the parent's assets. Fix I wish I knew sooner is you can move that money into a 529 plan and it won't hurt her aid nearly as much. Might be worth checking with a tax pro to see if you can still transfer it before the next FAFSA cycle opens.
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finleyk872mo ago
Ruby's spot on about the FAFSA hit being brutal on custodial accounts. The 20% vs. 5% asset rate is a real killer, and it's not something banks or credit unions ever mention when you open those accounts. Transferring that money into a 529 might not fully fix the past but it could save you a lot of headache going forward, especially if you open it in your own name instead of your daughter's. Just keep in mind some states have a holding period for transfers like that to avoid penalties, so it's worth checking before you move everything.
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